The UK’s Lloyds TSB Corporate Markets has begun a phased implementation of Asset Control’s AC Plus centralized data management solution to assist its provision of complex products to clients. According to the vendor, AC Plus is replacing a number of spreadsheet based applications and will be used to support expanded daily trading activity, manage risk and meet regulatory requirements within the Financial Markets division of Lloyds TSB Corporate Markets.
David Wright, deputy head of Financial Markets middle office at Lloyds TSB Corporate Markets, says the need to invest in a more robust solution was driven by its move beyond vanilla products to create more bespoke and complex solutions for customers in the areas of foreign exchange, interest rate and credit trading, and the rapid expansion of its debt capital markets capacity. “Asset Control provides the cleansed and consolidated pricing data that we need to support a wider range of products. It gives us scalability, so that as the business creates more complex products, it is relatively easy for us to provide traders and risk managers with the data that they need. It also enables us to make the risk management process more efficient,” he says. He adds that Asset Control “has proved an extremely easy partner to work with”, able to provide an off the shelf solution plus the necessary consultancy. “They responded instantly with everything we needed,” he says.
The ease of implementation of the solution was an important factor in the selection, because the IT department’s attention has been focused on supporting the bringing together of the relationship banking and trading expertise of Lloyds TSB Corporate Markets in new premises. Other key factors were the ability of AC Plus to consolidate internal and external price feeds and its support for a direct Reuters data feed for pricing, and “shredding” – the ability to capture information in a digital form and then reconstruct pages of data, according to the vendor. It adds that following the contract signing in the summer, phase one of the project was implemented in six weeks, and the system should be live before year-end.
Initially, AC Plus is being used at Lloyds TSB to handle the end-of-day pricing process, delivering prices to the trading engine and supplying data to the market and credit risk functions. AC Plus manages interest rate curves, foreign exchange spot and forward points, and interest rate/foreign exchange option volatilities. It supports real-time and static data from major and niche data vendors. In later stages of the project, the Asset Control technology may be used to consolidate and manage the wide range of reference data necessary to support the bank’s debt capital markets expansion. Lloyds TSB expects to complete the project next year.
The Asset Control solution replaces custom-built, spreadsheet-based applications run by the middle office team at Lloyds TSB. A reliance on spreadsheets to support structured products activity is by no means unusual, but is a set-up that becomes increasingly untenable as volumes grow, as Ger Rosenkamp, CEO of Asset Control, points out. “Lloyds TSB is expanding its activities to encompass more complex products and it wants to be able to automate the whole procedure around data and make it more efficient,” he says. “Historically it has done a lot of this work in spreadsheets but that is no longer acceptable, because the number of security types is expanding and the number of customers is expanding and manual processing makes no sense.” Regulation was a key driver for its replacement of spreadsheets with AC Plus, he adds. “It was important to have a system to create an audit trail to meet with the requirements of Sarbanes-Oxley and the Capital Adequacy Directive.”
The increasing use of derivatives and structured products is creating a requirement for the providers of data management solutions to incorporate the necessary capabilities to enable financial institutions to handle the new data demands created by this expansion, alongside the data requirements generated by their existing vanilla businesses. “While many data managements systems’ functionality is limited to equities and other simple products, AC Plus’s data models can be customized for new products,” Rosenkamp says. “We have created functionality for all the necessary inputs – we can collect structured products from different sources whether it is Reuters or Bloomberg or from internal systems – and then normalize and standardize the data. It is then a matter of distribution – of distributing the data to wherever it is required within an organization,” he concludes.